The Fed Goes Big

Earn While You Learn! ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ [EARN WHILE YOU LEARN! JOIN OUR FREE LIVE TRADING SESSION!]( Hello investor, The Fed Goes Big The verdict is in. The Federal Reserve went for a 50 basis-point interest rate cut during the FOMC meeting. It was an aggressive start to the rate-cutting cycle with the goal of keeping the labor market healthy. On top of the recent cut, 10 of 19 officials projected at least 50 basis point cuts over the last two FOMC meetings this year. (Source: Bloomberg) Fed Chair Jerome Powell said the jumbo-sized cut demonstrated the central bank’s confidence for pulling off a soft landing — moderate growth with falling inflation. - “This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%,” Fed Chair Jerome Powell said in a press conference. What’s more, Powell hinted that the next few cuts might be smaller than yesterday’s cut. - “I do not think that anyone should look at this and say, ‘Oh, this is the new pace,’” Powell said. As expected, Powell took time to insist that the 50 basis-point cut didn’t imply higher recession risks. (He preferred the term — “downturn.”) He pointed to the strength in the labor market and economic growth, along with cooling inflation, as the reason why the Fed is feeling good about the economy. - “I don’t see anything in the economy right now that suggests that the likelihood of a recession, sorry, of a downturn, is elevated,” Powell said. - “I don’t see that,” he continued. “You see growth at a solid rate. You see inflation coming down. You see a labor market that’s still at very solid levels. So, I don’t really see that now.” “We are not going back”: Notably, Fed officials see the rates to be around 3% over the next four years. Meaning? We might not be going back to the near-zero rate days, Powell said. - “Intuitively, most — many, many people anyway — would say we are probably not going back to that era where there were trillions of dollars of sovereign bonds trading at negative rates, long-term bonds trading at negative rates,” he said. - “My own sense is that we are not going back to that,” Powell added. So, Powell believes the neutral rate is probably higher than it was back then. There are several reasons why. Deglobalization leads to higher prices. Higher government spending may be inflationary. And so on. (Photo: Andrew Harnik/Getty Images) Looking for Reliable Returns? This is Your Best Bet Today’s Stock Pick: CNX Resources Corporation (CNX) CNX Resources is an independent oil and gas exploration and production company, and natural gas is its specialization. (Photo: Paul J. Gough/PBT) The company is a Free Cash Flow beast. How much are we talking about? The company expects to a whopping 8% in FCF yield. And it is aggressively repurchasing shares to retire about 35% of its outstanding shares since 2020. - “The second quarter represented the 18th consecutive quarter of free cash flow generation, a result that we proudly consider ‘redundant and boring’ as it highlights the consistent execution that is a cornerstone of our long-term per share value growth," commented Nick Deiuliis, president and CEO. - “Utilizing this free cash flow, we continued to repurchase shares, and cumulatively, since the inception of the buyback program in 2020, we have retired approximately 35% of our outstanding shares. We believe that our share repurchase program provides an opportunity to create incredible value for our long-term, like-minded shareholders, who will benefit as their per share value continues to grow meaningfully over the coming years.” (Source: CNX Resources) The company projected a big 32% CAGR for FCF per share from 2020 to 2026. What’s more, the FCF per share is expected to double in 2026 from 2022. Will the company achieve this ambitious goal? We don’t know, but the margin of safety is massive with this stock. Disciplined production: In the past, shale operators would chase over growth at all costs. Not anymore. Many of them become disciplined and keep its production level stable during the boom year in 2022. That’s difficult to resist – it’d be a quick buck to boost production and earn profits on these elevated prices. But with the production level being stable, CNX Resources will have ample room to generate high FCF since it didn’t take on too much of fixed costs, even with natural gas prices coming back to Earth. Bottom line: CNX Resources is all about free cash flow, and its yield is expected to post ~8% this year. Many of them would go to shareholders, so it would represent a double-digit return if we combine revenue growth and share buybacks. It is a good stock to own for reliable returns. 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